If there’s one thing to be said for 2011-12 for Toll, it’s that there are benefits to diversity, its CEO and managing director Brian Kruger told investors this morning.
“It’s a mixed result,” Kruger conceded. “A number of our businesses have struggled, however many continued to perform extremely well.”
Write-downs on assets in Australia and Japan led to Toll posting a dismal profit figure of $71 million, down 76% on the year before ($291 million). Not helping this profit figure was a $6.4 million payout to Paul Little, the former CEO who grew Toll from a company with 125 employees to the global business it is today. Kruger, who took over in January, received $2.61 million in compensation for the year to June.
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If the $215 million in write-downs were taken out, profits were $274 million, down from $291 million the year before.
Underlying revenues (excluding the impact of foreign exchange, fuel surcharge and acquisitions) were 2.5% higher. This growth wasn’t matched in profits, as Toll is investing heavily in capital expenditure to try to win new business and customers.
The Melbourne-based global logistics giant operates in 55 countries. It has multiple business divisions offering several different logistics services, many of which, under the ‘One Toll’ policy, have been rebranded in the last year.
Of its largest divisions, Toll Specialised and Domestic Freight had a great year thanks to its exposure to the resources sector, while Toll Global Forwarding (formerly Footwork Express, a Japanese logistics company Toll bought in 2009) and Toll Global Express (a 2011 amalgamation of Toll Priority and DPEX which does priority freight deliveries in Asia) had a worse time of it.
Toll has recognised the dawn of the age of online shopping, launching a new business-to-consumer offering that was “very well received”. But this remains a small part of its overall business, which focuses on larger bulk deliveries. A third of Toll’s profits come from clients in the embattled retail sector.
The problem for Toll’s new chief, who took over from the long-serving CEO Paul Little in January, is that its traditional clients, many of them in Asia, Europe and America, continue to operate in depressed conditions. Their business sales are down, and they are using Toll’s services less as a result.
Even though Kruger says Toll “gains more new customers than it loses”, it has seen volumes of freight go down in several of its businesses, meaning it needs more customers just to keep profits steady. This has been the case for a number of years.
In May, Kruger said he had “never seen or been involved in a market where there’s been so much noise from our customers about the need for us to help them manage their margin issues”, referring to Toll’s customers, particularly those in discretionary retail markets.
This hasn’t improved, Kruger said in response to questions from analysts this morning.
“It’s probably abated a little bit, but whenever we have an upgrade with a discretionary retailer who’s under margin pressure, it’s a challenging discussion.”
Toll has managed to improve its conversion of sales to cash (getting its customers to pay their bills), cited by the company’s new CFO, Grant Davenport, as a priority. Almost all (99%) of Toll’s customers are now paying their bills, up from 96% last year.
The focus for the current financial year, Kruger said, is to complete a strategic review of its Japanese divisions, which are not performing well. He wouldn’t give details of the review, saying the options being considered were commercially sensitive. Analysts speculate the review may lead to a write-down or sale of the assets.